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India’s new protectionism could scare investors away

India's PM Modi defends globalization

Last month, India’s Prime Minister Narendra Modi was warning nations in opposition to closing off their economies.

“The forces of protectionism are raising their heads against globalization,” he stated on the World Economic Forum in Davos, criticizing new trade barriers cropping up around the globe.

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Since Modi returned from the Swiss resort city, India has raised a few of these limitations itself.

The authorities increased tariffs on imported smartphones to 20% in its funds on February 1, prompting Apple (AAPL) to raise the price of an iPhone X in India to $1,700.

More such tariffs could be within the offing. Modi’s authorities is contemplating a 70% tax on imported photo voltaic panels from nations equivalent to China and Malaysia, following a grievance by native producers.

That tariff has been placed on maintain by an Indian court docket after a photo voltaic undertaking developer — considered one of many who could endure if Chinese panels turn out to be dearer — referred to as it “illegal” and “arbitrary.”

India’s most important inventory exchanges have gotten in on the protectionist act, asserting this week that they might stop sharing data with international markets equivalent to Singapore in a bid to route extra futures buying and selling by India.

Related: India’s Modi says globalization is under attack

The strikes have triggered considerations that India could scare away investors attracted by its speedy financial progress. Modi inspired overseas funding throughout his first 4 years in workplace, and it hit a report excessive within the yr to March 2017. But analysts say that could unravel quick.

“India’s sharp turn toward protectionism will undoubtedly hit foreign investor confidence in the country,” Sadanand Dhume, a resident fellow on the American Enterprise Institute in Washington D.C., instructed CNNMoney.

“It raises questions about whether India is still pursuing market-friendly reforms, or would prefer to return to the failed import substitution model of the past,” he added.

Modi desires overseas investors to assist modernize India’s financial system. But he is additionally been making an attempt to spice up home manufacturing and create extra Indian jobs along with his “Make in India” marketing campaign — not not like Trump’s “Buy American, Hire American” directive.

Trump has slammed India’s commerce limitations previously and did so once more on Tuesday, criticizing import taxes motorbike firms like Harley Davidson (HOG) must pay, whereas Indian companies export “thousands and thousands of motorcycles” to the U.S. without cost.

“I don’t know why people allowed them to get away with it,” Trump stated in a gathering on commerce on the White House. “I believe we must always have a reciprocal tax.”

Harley Davidson has a manufacturing unit in India and subsequently doesn’t pay the tariffs. And India exported simply four,000 bikes to the U.S. final yr, out of 1.5 million it offered around the globe.

Related: What is a ‘reciprocal tax’ and why is Trump talking about it?

But Trump is not the one one slamming India’s tariffs.

Modi is “on course to erect the wall of protection all over again” after successive governments spent many years opening up India, distinguished economist Arvind Panagariya wrote in an op-ed in India’s Economic Times newspaper on Monday.

Panagariya, who was a senior adviser to the Indian authorities till August final yr, warned that extra tariffs are doubtless on the best way.

“Unless we work on a direct removal of these hurdles, we would keep hurting our own consumers through higher tariffs without preparing our entrepreneurs to challenge the competitors in the global marketplace,” he added.

CNNMoney (New Delhi) First printed February 14, 2018: 12:10 PM ET


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